Mobile Has Largely Erased the "Digital Divide"

The thing about "problems" is that you have to know when a problem has been largely solved, substantially solved or is so close to being solved that one has to move on to tackle the next set of problems. Internet access and broadband are, in many ways, those sorts of problems. Availability is less and less a problem. Redesigning life and business to take advantage of the changes is where the real work awaits.

Broadband Networks: Slim Returns

Wireline networks have the weakest returns on invested capital with a 1.5 percent gain over the last decade, argues Sanford Bernstein financial analyst Craig Moffett.

Wireless networks had a meager return of 0.3 percent. Cable garnered a 2.5 percent return. Satellite networks had the best return on invested capital at 5.5 percent.

At least in part, that's one reason DirecTV shares have trounced other companies in 8-year returns, he argues. Other stocks—AT&T, Comcast, Dish, Sprint and Verizon—have negative returns, says Moffett.

But here’s where the returns get tricky. Once you add up the costs of various telecom deals, the returns look much worse.

Broadband networks: Returns on invested capital stink | ZDNet

Not Enough Competition in U.S. Broadband Market?

Many people believe there is not enough competition in U.S. broadband access markets, which will come as news to the firms that actually compete in the market. But it's always easier to criticize somebody else's business than your own, one might observe. read more here

Sometimes the argument is that the alleged "lack of competition" means slower access speeds in the U.S. market, compared to some others. And the U.S. does feature typical speeds than some other nations do. With no exceptions, those nations are territorially small, have high population density and also tend to have had heavy financial sponsorship. The first observation means any advanced network can be built faster; the second and third observations mean any advanced network can be built more affordably.

The simple fact is that no large country, especially not any country with continental size, ranks in the very-top of broadband speeds. And there are simple reasons for that situation: Very-large networks, covering very large areas, with highly-varied population density, cost much more to build, and simply take longer.

Despite those background factors, the United States ranks about where you would expect, in line with the United Kingdom, France and Germany, for example, in most measures of broadband speed or coverage. The United States is not at the top, and likely never will be. The United States never ranked much more than 14th globally for fixed-line voice, either, and nobody seems to think voice service has been an impediment to economic growth, social equity or anything else.

The other issue is consumer demand. Broadband penetration in the United States in right in line with PC ownership. About a quarter of U.S. homes do not seem to own PCs, making broadband a rather useless product. Now that broadband adoption is up around the 70 percent level, most people who own PCs buy broadband.

The other angle is consumer demand for various speed tiers. There just isn't much demand for the fastest tiers of service, with most buyers purchasing services virtually all surveys indicate they are happy with. In other words, U.S. consumers choose services offering moderate speeds, and moderate prices, not the fastest speeds sold at the highest prices. Unless you think people are irrational, that sort of makes sense: people buy services that meet their needs, not "just because" faster speeds are available.

The FCC also notes that 66 percent of U.S. consumers already are buying access services running at bandwidths between 3 Mbps and 10 Mbps. Most service providers will tell you that this represents the bulk of current buying behavior. Will people buy services of higher capacity in the future? Most people think so. Are they likely to pay much more than they do now? Perhaps, but only if some other part of their current budgets can be shifted. There is little, if any, evidence that the percentage of household spending devoted to communications changes very much from year to year, running about 2.3 percent or so of budgets, and growing very slowly over time.

Broadband access is a means to an end. People might want the Apple iPad because it, in itself, is seen as having high value. Price has not been an impediment to robust adoption. But broadband access isn't that sort of product. There isn't the same "need" to buy the fastest service, as there might be to buy a Lexus.

One might argue that 3 Mbps is good enough for most people who pay with their own money. The Federal Communications Commission's latest report on the state of U.S. broadband access services took a look at locations by zip code, and estimated that 48 percent of U.S. households had, at the end of 2009, the ability to buy downstream service of at least 3 Mbps and upstream service of more than 200 kbps from at least three fixed-network providers. You might not say that is fast enough, or that three providers are not enough. Fair enough, but that's a value judgment.

read more here

Some 44 percent had the ability to buy such service from at least two fixed-network providers.

About 22 percent of househoulds could buy service of at least 6 Mbps/1.5 Mbps from at least two providers, while 57 percent could buy from at least one provider. Some 20 percent of U.S. households could buy service of at least 10 Mbps from at least two providers, while 58 percent could buy service from at least one provider. Some work needs to be done there, but upgrades are on-going, and those gaps will be closed.

If one adds in wireless providers, the FCC found that 58 percent of U.S. homes could buy wireless service of at least 3 Mbps/200 kbps from at least three providers, while 35 percent could buy from at least two providers and six percent had at least one provider.

But what makes a market workably competitive? That might not be a tough question in the abstract. Most people would probably agree that multiple competitors in any market are good for competition, and therefore good for consumer welfare. read more here

Matters are tougher when looking at capital-intensive industries. But how much facilities-based competition is actually possible in the wireline or mobile broadband industries?

Some would argue from experience and study that much more than two or three facilities-based competitors in a fixed-neetwork business, in a large market, is about as good as it gets. read more here

Triple Play and Broadband Pricing: The Assumptions Always Matter

Methodology matters when any researcher attempts to make a cross-nation comparison of TV, voice or broadband access value and spending.

For example, when trying to determine whether consumer prices are up, down or flat, and looking at either stand-alone or bundled service packages, the assumptions make all the difference.


A new study by the Technology Policy Institute, for example, finds that U.S. broadband prices are relatively steady.

 Researchers Scott Wallsten, TPI VP and James L. Riso, TPI senior fellow, studied about 25,000 wireline broadband plans across Organization for Economic Cooperation and Development countries as part of their analysis.

Overall, quality-adjusted prices remained relatively constant from 2007 to 2009, they find.

Prices for standalone broadband plans in the U.S. are approximately in the middle of the range of prices across OECD countries. Prices for triple play plans in the U.S. are among the highest in the OECD. And while residential prices have on the whole remained constant in the U.S. they have been declining in most other countries.

read the full study here.

The study also compared quality-adjusted broadband prices across countries and over time, and found that
U.S. standalone broadband plans (plans not bundled with voice or video services) compare favorably to other OECD countries, but that U.S. prices for triple play (plans bundled with voice and video) packages and very-fast broadband connections tend to be higher than those in other OECD countries. In addition, while residential prices have remained unchanged in the U.S., they have been falling in most other OECD countries, the study found.

One might argue that the triple-play prices are subject to the assumptions one makes. By definition, a triple-play bundle includes three products at one price, so an analyst has to attribute component prices to each of the constituent products.

Indeed, the researchers caution that the results must be viewed carefully. "The figures must be interpreted cautiously," the report says. The raw prices do not immediately translate into meaningful observations about the real world for at least two reasons, say Wallsten and Riso.

"First, the number of plans in a given country will affect the median and range of prices in that country," they say. "These simple summary statistics assume all of a country’s plans are equally important and representative, which is not the case."

Plans often are available to subsets of a country’s population of varying size, and the popularity of different plans differs even when they are available to the same population. "Notably, existing studies and sources of data on prices suffer from this problem: the prices they report may be based on plans that are not those to which consumers typically subscribe." In other words, the study deals with published rates, and not with the percentages of consumers who may be buying various plans.

Also, the plan data does not account for contracts and data caps, which makes simple comparisons difficult.

The other issue, when looking at triple play pricing, is that if prices for the other constituent services--voice and video--vary significantly, the triple play packages will reflect, to a large extent, those pricing differentials. And most observers might note that U.S. video entertainment packages cost more than equivalent services in most other markets. See study  here for a comparison of multichannel TV spending in variious countries.

The point is that all such cross-country studies are highly dependent on the assumptions and methodology used.

Few U.S. Consumers Buy 25-Mbps Services

It appears there is almost no U.S. consumer buying of the highest-speed broadband access services, according to Federal Communications Commission data.

Of services offering 25 Mbps or more bandwidth, business buyers register something on the order of two percent of total broadband subscriptions.

Consumer take rates are low enough not to register on the graph. One might argue that take rates for the higher tiers among consumers are so low only because the 25 Mbps services are not available in most markets. That's true. See http://ipcarrier.blogspot.com/2010/12/us-broadband-access-not-as-bad-as-some.html.

But even where such services are available, take rates remain quite low. Low enough, in fact, that U.S,. service providers never disclose the numbers.

How Big is European Demand for Fiber-Based Access Services?

European consumers value reasonable prices and high bandwidth access services. The issue is that they seem to value affordable prices more than they do higher speeds.

At least that is the conclusion one might draw from a new survey of 13,764 European online users.

When asked about the most-important considerations when choosing a new Internet service provider, 87 percent indicated "price" was important.

(click on image for a larger view)

About 62 percent said the speed of the connection was important. Most other issues, ranging from technical support, installation fees and type of connection were cited by 31 percent to 35 percent of respondents.conducted by Forrester Research.


Telco fiber services might lag the headline speeds offered by cable. Ian Fogg, Forrester Research analyst, suggests that where cable might offer 100 Mbps, telcos might offer 40 Mbps to 60 Mbps.

The issue is whether the "speed gap" will matter much. One would think it would. But in other markets where very-fast services are available, at higher prices, consumers do not seem to be buying them in large numbers. "Fast enough at a lower price" seems to be the winning formula.

U.S. Broadband Access: Not as Bad as Some Believe

There's an interesting statistic in the Federal Communications Commission's latest report on the state of U.S. broadband access services. The FCC took a look at locations by zip code, and estimated that 48 percent of U.S. households had, at the end of 2009, the ability to buy downstream service of at least 3 Mbps and upstream service of more than 200 kbps from at least three fixed-network providers.

Some 44 percent had the ability to buy such service from at least two fixed-network providers.

Some 28 percent of households had the ability to buy service of at least 3 Mbps/768 kbps from at least three providers, while 48 percent had the ability to buy from at least two providers.

About 22 percent of househoulds could buy service of at least 6 Mbps/1.5 Mbps from at least two providers, while 57 percent could buy from at least one provider.

Some 20 percent of U.S. households could buy service of at least 10 Mbps from at least two providers, while 58 percent could buy service from at least one provider.

If one adds in wireless providers, the FCC found that 58 percent of U.S. homes could buy wireless service of at least 3 Mbps/200 kbps from at least three providers, while 35 percent could buy from at least two providers and six percent had at least one provider.

About 40 percent of U.S. households could buy service of at least 3 Mbps/768 kbps from at least three providers, while another 40 percent could buy service from at least two providers, and 17 percent could buy service from at least one provider.

That means 97 percent of U.S. homes can buy service of  3 Mbps/768 kbps from at least one provider in each area. In addition, 28 percent of those households could buy such service from at least three providers; 48 percent could buy from at least two providers and 21 percent could buy from at least one fixed provider.

About 80 percent of U.S. households can buy 6 Mbps/1.5 Mbps service from one to three network providers, and also 80 percent could buy service from at least one provider as well.

Some 79 percent of U.S. households could buy 10 Mbps/1.5 Mbps service from at least one provider.

You can argue more speed is needed, or that prices are too high: people do that. But that's a significant number of facilities-based competition for nearly 80 percent of U.S. households.

Slight Dip in Consumer Satisfaction with Broadband Access Services

Overall customer satisfaction with residential high-speed Internet service providers has decreased slightly from 2009 due to declines in satisfaction with cost of service and offerings and promotions, according to J.D. Power and Associates.

The study finds that overall satisfaction with residential high-speed Internet service averages 634 on a 1,000-point scale, a decrease of five index points from 2009.

The study also finds that customer satisfaction with cost of service averages 584 in 2010, a 12-point decrease from 596 in 2009. Contributing to this decline are decreases in satisfaction with fairness of prices paid and ease of understanding pricing options.

“Although product performance is most important in retaining customers, the top reason they switch providers is cost-related,” said Frank Perazzini, director of telecommunications at J.D. Power and Associates.

It isn't always clear how such "satisfaction" ratings affect customer propensity to churn, though. Some products just never seen to be seen as providing high value and reasonable price. Airline service comes to mind. But most consumers are happy with broadband. See http://ipcarrier.blogspot.com/2009/12/is-broadband-satisfaction-directly.html

J.D.Power and Associates

Virgin Media Prepares for 100 Mbps Service Launch

Virgin Media has announced the rollout timetable of its 100 Mbps broadband access service, which will priced between £35 a month (about $56) when bought in a bundle, or just £45 per month (about $72) when bought as a stand-alone product.

The 100 Mbps service will go on sale from December.

The average download speed in the United Kingdom was 5.2Mbps in May 2010, up from 4.1Mbps in April 2009. Nearly a quarter (24 percent) of U.K. residential broadband connections had a headline speed of above 10Mbps in May 2010, compared to eight percent in April 2009, according to Ofcom, the U.K. communications regulator.

Virgin Media

Why Don't All Users Buy the Broadband Equivalent of a Lexus?

Faster is better, where it comes to broadband. But so is a Lexus, right? But there's a reason we have vehicles in all sizes, optimized for different applications, at different price points.

We do different things with vehicles, and for most of us, money is not unlimited. Were it not so, perhaps most people would drive a Lexus. If one assumes there is very little a single cannot do with 15 Mbps, then a family can well benefit from 50 Mbps, if it believes it will have three or four users online, all at the same time, all watching video at the same time.

Lots of households will find that overkill, at least for the moment. In some cases, users can buy 50 Mbps service from Comcast, for about $100 a month. That's a better deal than $145 a month. But the issue for many users will be how much those users really want to spend for service, when they are paying their own money.

More Than 20% of Consumer Broadband Lines Now Come with VoIP

Voice over IP is becoming increasingly important to service providers as a bundle component, say researchers at Point Topic.

“Over 22 percent of consumer broadband lines worldwide now come with a Voice over IP service, and in some markets, such as France, penetration surpasses 90 percent.

Point Topic says there are more than 100 million consumer VoIP subscriptions in service, while another 12 million subscribers were added in the first half of 2010,” says Point Topic’s Senior Analyst John Bosnell.

In some cases, the apparent "killer app" status is likely an artifact of how services can be bought. In many countries, a broadband connection requires purchase of a voice line as well. It might be going too far to say voice is the killer app for broadband access. For most people, Internet access likely is that driver. But voice has emerged as a key feature for broadband access packages, at the very least.

More Than One in Five Consumer Broadband Lines Now Come with VoIP

How Much Demand for 100 Mbps?

While next-generation fixed-line broadband speeds will at some point increase dramatically to 50 Mbps, 100 Mbps, or higher, in some cases, just seven percent of European online households will pay more for higher speed, says Forrester Research analyst Ian Fogg. Some argue that will resolve itself in time. Up to a point, that probably is true. But between "here" and "there" is a transition period where deployed capital could be terribly wasted.

And it is not as though the communications industry has no experience with the dangers. An overly-enthusiastic approach to mobile 3G services nearly bankrupted many mobile providers across Europe in the first decade of the 21st century. All of that should suggest the wisdom of matching broadband supply to demand, when the transition from 3G to 4G, or 10 Mbps to 50 Mbps, does not necessarily provide an obvious end user value as great as the transition frm dial-up to broadband access.

One can argue that prices for higher-speed services are too onerous, but that simply begs the question. Given a choice, nearly all consumers opt for reasonably-fast or moderately-fast services, instead of the "blindingly-fast" services.

One can argue that the only reason is "price," but that argument is akin to saying that most people would buy a Lexus if it cost as much as a Honda Civic.

But more than 70 percent of U.S. broadband customers are happy with their overall service, ranking it between an 8-10 on a 10-point scale, according to Leichtman Research Group. A mere 3 percent scored their service with a 3 or less on the recently conducted survey, while just 26 percent said they’re “very interested” in receiving faster speeds at home. See http://www.leichtmanresearch.com/press/062210release.html.

Leichtman Research Group finds that 71 percent of US broadband Internet subscribers are "very satisfied" with their current Internet service at home (rating satisfaction 8 to 10 on a 10-point scale), while just three percent are not satisfied (rating satisfaction 1 to 3).

Overall, 66 percent of broadband subscribers rate the speed of their connection 8 to 10, while six percent rate it a 1 to 3.

None of that necessarily and directly speaks to the issue of how much demand there might be for faster services, though. About 26 percent of broadband subscribers are "very interested" in receiving faster Internet access at home than they currently receive, while 44 percent are not very interested.

What is not clear, though, is how much of that potential interest can be converted to actual buying of higher-speed tiers, and, if so, how fast those tiers would need to be, and how they would have to be priced, to move consumers to act. Many consumers might be happy enough to migrate from tiers operating in the 3 Mbps to 5 Mbps range up to 8 Mbps to 10 Mbps, particularly when there still is no compelling new application that requires such bandwidth.

"Next-gen broadband will not be such an easy sell, as there's little pent-up speed dissatisfaction," at least not yet, says Fogg.

Try and find any U.S. service provider, offering actual speeds of just 50 Mbps, talking about the take rates for such services. If you cannot find any company willing to talk about take rates, that is likely because the take rates are so low.

German cable network operator Kabel BW claims that around 40,000 customers are using broadband with speeds of 50 Mbps or 100 Mbps, at a time when 50-Mbps service costs about $41 a month.

 About three million homes are able to buy service at those rates. So buyers represent about one percent of customers. What is not clear is what percentage of those buyers actually are businesses, rather than consumers, either.

Blair Levin on U.S. Broadband

Blair Levin wrote the Federal Communication Commission's "National Broadband Plan," so you can argue he knows a thing or two about both broadband and the policy and financial issues involved.

U.S. Consumer Broadband Speeds Double Every Four Years, Prices Down 23%

Despite arguments by many observers that U.S. fixed-line broadband access services are not competitive, it is a curiously "uncompetitive" market where speeds double every four years, for more than a decade, growing 20 percent a year over the last 13 or so years.

Prices are a harder thing to measure, given the changes in the basic product over time. In other words, what a consumer pays today for a broadband connection is not an "apples to apples" comparison, given the doubling of speed every four years. The "product" a consumer can buy today, for any nominal price, is a different product than was purchased four, eight or 12 years ago.

Nevertheless, the American Consumer Institute notes that, between 2004 and 20009 alone, Internet access pricing declined 23 percent.

Another academic study suggests cable modem prices grew 0.8 percent, while digital subscriber line prices grew five percent, between 2004 and 2009. At the same time, cable modem speeds increased 85 percent while DSL speeds increased 80 percent, that same study found.

On a cents-per-bit basis, cable modem prices declined 45 percent, while DSL cost dropped 42 percent. Over that same period of time, the consumer price index grew 14 percent.

Fuel prices increased 26 percent, food increased 15 percent, housing increased 13 percent, medical care prices increased 21 percent and education increased 32 percent.

It is a strange "uncompetitive" market indeed that has doubled "quality" (speeds) every four years while prices overall have declined 23 percent.

Some observers have suggested that the Google-Verizon agreement on how to handle network neutrality is a concession by Verizon that fixed-line broadband actually is "uncompetitive," or at least not as competitive as wireless broadband is. Some observers might argue that Verizon has conceded nothing of the kind.

The FCC study, one might argue, suggests that despite the apparent lack of competition in the fixed-line broadband market, the data suggest consumers are indeed reaping the benefits of competition.

Cisco Touts "Connected Conversations"

Services, not raw speed, is where consumers think the value of faster broadband will be.

Where are the Broadband Apps?

Some people probably just can’t understand why more than 70 percent of Americans are happy with their existing broadband service. The usual explanation for this state of affairs (besides blaming people for being "dumb") is that there are no applications driving consumer demand because broadband is too slow to allow for higher bandwidth applications.

Experience from markets where 10 Mbps to 100 Mbps service is available suggest it is applications that lag, even when bandwidth is not a particular problem. After 10 years, what truly important applications have developed in markets such as South Korea, for example? You might point to gaming or video on demand.

But some of us would argue those are relatively trivial innovations. They don't seem to change a nation's productivity, and neither of those apps are "new" things we hadn't thought of before.

With over 40 million broadband homes since 2008 with more than 6 Mbps of connectivity, one would expect that there would be more applications that require and thrive at 6 Mbps, some would argue. There arguably are new things people do that involve piracy (content), and there might be some premium subscription services that have at least some penetration.

Don't get me wrong; it is entertaining to watch YouTube or Hulu. I'm just not sure that was what we generally had in mind when we have argued that huge pipes would lead to all sorts of interesting and socially or economically useful new developments. New ways to watch television are interesting to lots of people and companies, to be sure.

But was that what you had in mind?

Digital Society � Blog Archive � Reality check – Americans like their broadband service

Global Broadband Access Market Up to $414 Billion by 2020

The global broadband access market, including both fixed and mobile modes, will increase from $274 billion in 2010 to $416 billion in 2020, an increase of 52 percent, according to the Telco 2.0 Initiative and Disruptive Analysis.

More than half the revenue growth will come from wholesale and “two-sided” fees for improved access capacity and quality. This could include fees paid by business partners who want access to network service provider features and services.

By 2020, mobile broadband will be worth $138 billion, or 32 percent of the total broadband access industry revenues.

The analysts predict growth of “bulk wholesale” revenues, where capacity might be purchased by a third party as a component of some other service. Services provided to electrical utilities or other parties with telemetry needs are other examples.

“Comes with data” business models such as used by Amazon Kindle to sell content also will play a bigger role. Here, a product vendor or service provider contracts for data capacity with the broadband provider, and bundles it in a combined offer while the user does not have a subscription or direct relationship with the telco.

“Slice and dice” wholesale is more complex, and more controversial. This involves operators selling data capacity in fine-grained “parcels” to parties other than the user, who is typically also paying for some level of access.

This type of “two-sided” business model could involve deals with consumer electronics vendors for extra high-quality streams over existing broadband lines, or to content or application providers where they pick up the bill for data transmission rather than the end-user.

Any way one looks at the matter, it appears that various wholesale or enterprise revenues are going to be a bigger part of the overall mobile revenue stream in the future.

Access for "One Price Across Digital Platforms" Will Come

In a move with likely implications for the evolving Internet access business, The New Yorker will let readers pay once for digital access across the iPad, the Kindle and other platforms, hoping to improve on the current industry practice of charging even subscribers for each edition on each device.

The same sort of thing ultimately will happen in broadband access as well, as users start to experience greater pain paying separately, by the device, by the form of access, by the place for their broadband access services.

Both AT&T and Verizon already have spoken about a future scenario where an authorized user can use wireless and wired broadband access, across multiple devices. Think of it as a sort of family plan for individual users, where the "family" includes all the communications-capable devices a particular user wants to use.

If you think the future will feature communications need for a wide variety of appliances, used across home and mobile enviornments, but with differing usage characteristics, a unified plan makes sense.

New Yorker Plans One Price Across Digital Platforms - Advertising Age - MediaWorks

Gap Between Bandwidth and Revenue is Key Wireless Business Challenge

In a nutshell, the gap between bandwidth consumption and revenue is the key problem faced by mobile service providers. The reason is simple enough. Everybody agrees the future industry revenue model will be driven by data services, not voice.

And though service providers will sell a mix of simple connectivity services and other value-added features and services, access will remain a huge, perhaps the biggest single revenue source, even in the future.

Given user resistance to paying higher prices for bandwidth, service providers will struggle to close the gap between rising supply of bandwidth and slower-growing ability to price the additional capabilities in any linear fashion.

That is one reason why offloading access from the mobile networks to the fixed landline network is so important, and why a developing rationale for landline network services providers is "wireless offload." Especially as high-bandwidth video becomes a bigger part of the end user demand, it will be necessary to offload as much of the load as possible to fixed networks.

Why Wireless Might be the Best Way to Serve the "Unserved"

A new study produced by the Federal Communications Commission might be interpreted as arguing for a wireless approach to bringing broadband to many unserved locations, said by the FCC to number seven million homes, adequate for service at 4 Mbps downstream and 1 Mbps upstream.

The most rural 250,000 housing units account for $13.4 billion of the total $23.5 billion investment required. In fact, as cost varies inversely with density and distance from a central office or cable headend, the cost curve is a reverse Pareto distribution (a reverse "long tail").

The FCC says wireless, such as a fourth-generation wireless network, is the lowest-cost technology in 90 percent of cases. The point is that population density generally is inversely related to access cost.